Technology, Incentives Revive Cook Inlet

Armed with modern, sophisticated oil patch technology, it’s not at all unusual to see operators re-entering fields either long abandoned, ignored or on their last producing legs, so to speak.

These folks begin drilling new wells from the get-go and/or revving up production using existing boreholes – most commonly via new gee-whiz technology applications either in known producing horizons or zones not yet identified as producers. Think unconventional, in some instances.

Voila.

The good times begin rolling once again in areas only recently considered to be essentially dried up and near death.

One of the best-known examples of this kind of near-magical turnaround is the giant old Permian Basin in Texas. The longtime red-hot producing basin lost its luster for some time, never quite recovering from the disastrous crude oil price plunge in the 1980s. Today, the multi-field basin is rife with new activity, including both conventional and unconventional plays (RELATED STORY) .

But far away from this region – and less familiar overall – the Cook Inlet, which extends about 180 miles from Anchorage to the Gulf of Alaska on Alaska’s southern coast, is a whole different environment currently attracting renewed attention.

The general water depth in the offshore portion of the Cook Inlet area ranges from 20 feet to as much as 300 feet.

Considered to be the birthplace of Alaska’s modern-day hydrocarbon exploration industry, the Cook Inlet initially became a big deal when the state’s first commercial oil discovery occurred there in 1957.

About 23 gas fields and six oil fields have been discovered since 1957. Nearly all of the petroleum production has been obtained from conventional sandstone and conglomerate reservoirs of Tertiary age in structural traps on anticlines and faulted anticlines, according to the U.S. Geological Survey.

After a number of years, Cook Inlet production began declining, along with the operators’ interest.

This was understandable given that the North Slope, home to the giant Prudhoe Bay oil field, discovered in 1968, was beckoning. The oil finders and their money quickly headed north with the goal to latch on to some of the giant reserves in this largest oil field in the nation.

But nothing lasts forever – and the Cook Inlet basin today is becoming a new old hot spot.

Referring to Cook Inlet, Joe Balash, deputy commissioner of Alaska’s Natural Resources division, noted “we’re sitting on what, by any other measure, is a world-class basin.”

Small Players in a Big Place

In a new assessment of undiscovered, technically recoverable oil and gas resources in the Cook Inlet region of south-central Alaska, the USGS estimates that mean undiscovered volumes of nearly 600 million barrels of oil, about 19 trillion cubic feet of natural gas, and 46 million barrels of natural gas liquids await discovery in this area. The agency used a geology-based assessment methodology.

The natural gas estimate is roughly nine times as much as the agency’s last assessment done in 1995, and includes unconventional natural gas, which was not a part of the earlier study.

This has great significance for the more highly populated southern part of Alaska. The region has morphed from its gas-rich supply status when the exodus to the North Slope occurred, to being dramatically gas short, according to Curtis Burton, CEO at Buccaneer Resources, which trades on the Australian Stock Exchange and has a U.S. base with activity/production in disparate regions of the country, including Alaska.

“Today, utilities in lower Alaska are warning of brownouts by 2012 because of an inadequate gas supply,” Burton emphasized.

Combine this situation with the USGS numbers and significant tax incentives from the state, and it’s no surprise that operators are scrambling to get back to the Cook Inlet. In fact, in 2007, then-governor Sarah Palin authored legislation to up the tax on North Slope production to create an incentive for operators to return to the Cook Inlet, according to Burton.

An added appeal here is that producers reportedly can sell the natural gas at a premium compared to that in the “Lower 48,” where the price of the commodity has essentially been on life support for some time, struggling to cling to $4/Mcf or thereabouts.

Buccaneer’s modus operandi is to look for hydrocarbons where the majors have departed, on the premise that there are prizes remaining in these areas that can turn small independents into large ones, if done right. For example, they never go into a basin without regional expertise from the people there.

“What’s not a meal for an 800 pound gorilla is a pretty tasty feast for companies like us,” Burton noted.

Buccaneer is completing its second onshore well in Alaska and has completed permitting two well sites offshore in the Cook Inlet. Four onshore wells reportedly were drilled along the Inlet’s banks in the past year.

There are challenges in the offshore environment of the Inlet, but they are surmountable.

“There are high currents – up to five or six knots – and significant tides,” Burton said. “From late November to April, you can have ice floes from broken sheet ice in the northern part of the Inlet, but it’s a manageable process.”

Burton emphasized the big reason for no drillbit action in the offshore here since 1993 can be attributed to the lack of a jackup rig that could move around in the Inlet and drill the wells.

This entails major money, and it makes a big difference when the Big Guns offer their help.

The Alaska Industrial Development and Export Authority has stepped up to the plate to lend Buccaneer and rig-operator cohort Ezion Holdings Ltd. between 24 and 30 million dollars to purchase a rig and bring it to Alaska.

The plan is to have the rig in place by next April for the new drilling season.

“It’s an exciting basin to be in,” Burton exclaimed. “There’s been so much change in technology and capabilities since 1993.”

New Horizons?

The region also has caught the eye of large independent Apache Corp., which has an established reputation for going into older near-worn-out fields worldwide and bringing them soaring back to life, principally via applying technology not used there earlier.

The company currently holds about 800,000 acres in the Cook Inlet region, which makes it the basin’s largest leaseholder.

During an August conference call, Apache CEO Steven Farris said, “It’s an exploration play, but the guys have wowed me enough for me to believe it’s a real opportunity.”

Considering the patchy yet successful drilling history – in combo with the USGS numbers – the opinion of many geologists that the region hasn’t been adequately explored carries considerable weight.

“Our interest in Cook Inlet stems from the fact that several large fields have been discovered, but very few wells have been drilled that test all of the horizons,” said AAPG member Dave Allard, new ventures exploration manager for North America and Caribbean at Apache.

The company is said to be interested principally in oil – but recognizes the ready local market for natural gas.

High quality seismic data is key to exploration in new plays in the Cook Inlet basin, and Apache is on board with that.

“We believe this is a play that is just ripe for exploitation utilizing modern seismic technology,” said Apache CEO and AAPG member Rod Eichler during investor day in New York May 17.

Nodal Technology’s Impact

Apache contracted NES LLC (now SA Exploration, or SAE) to test a variety of seismic recording and source systems to identify the premier equipment and acquisition parameters to best enable future exploration across their area lease holdings.

The node technology recording equipment used in the test project included FairfieldNodal’s ZLand and Z700 cable-free systems. The Z700 marine system is designed for use in water depths as much as 700 meters.

Owing to restrictive state and federal permits, the test occurred within a condensed time frame from mid-March to early April. Unpredictable ice and ground conditions placed added demands on the equipment, according to Keith Matthews, sales director of systems division at FairfieldNodal.

For the limited test, the company supplied 725 ZLand nodes and 200 Z700 nodes, including support and operations personnel. The Z700 deployment/retrieval system was installed on a local vessel.

“Operationally, our components and support performed nearly flawlessly, which is a tribute to the suitability of these two node systems for work in harsh environments,” Matthews said. “In this case, it was one of the world’s most challenging regions for seismic operations.

“For instance, the temperature was -29 degrees centigrade, with seven-knot tidal currents and a 24-foot tidal range,” he noted.

When all was said and done, the totally cable-free, self-contained nodes proved to be the system of choice for the multi-year 3-D seismic program Apache plans to implement in the difficult Cook Inlet once it completes acquiring all of the necessary federal permits.

The planned acquisition includes marine, transition zone and land environments.

Marine offshore operations reportedly will occur from April to November, with transition zone activities spanning September to December and March to May, depending on sea ice. Onshore activity generally will take place from September to April.

“To have Apache specify our nodes for such a difficult and important project shows how confident they are that our cable-free systems are up to the task,” said AAPG member Gary Bartlett, regional sales manager for FairfieldNodal in North America.

The lightweight, flexible, easy-to-deploy autonomous nodes with their minimal footprint record continuously and are a high profile example of how new innovative technology is spurring new exploration.

For the 3-D program, FairfieldNodal sold $30 million worth of node seismic equipment to SAE on behalf of Apache Corp.

“This thirty million dollar purchase of recording nodes marks the first time both offshore and onshore versions of the equipment will be used in combination,” said Steve Mitchell, vice-president of the systems division at FairfieldNodal.